Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Thursday, May 31, 2012

“SUMMER” TAX RERUN - A TAX DEDUCTIBLE VACATION

One
of the reasons I am called the “Wandering” Tax Pro is because once the tax
filing season ends I enjoy travel via all methods – car, bus, plane, ship and
train (not necessarily in that order). In the days before my uncle went to his
final audit, I would pack my bags and we would embark on a transatlantic
crossing, often on the QE2. We would also visit the Caribbean or take a train
trip in the fall. Unfortunately, none of these trips were tax deductible for a
tax accountant or a retiree.

However,
my annual travel itinerary would also include two totally tax-deductible
domestic vacations. I would attend the National Conference of the National
Association of Tax Professionals (NATP) and the Annual Convention of the
National Society of Tax Professionals (NSTP), held each year in a different US
city. I have visited Anaheim, Atlanta, Arlington, Alexandria, Boston, Corpus
Christi, Minneapolis, Orlando, Sans Antonio, Diego and Francisco, Washington
DC, and other locations as a registrant of these two annual events, and
deducted every penny of my hotel, meal and travel expenses.

What
You Can Deduct

You
can deduct expenses that are “ordinary” and “necessary” for your trade,
business or profession. An “ordinary” expense is one that is common and
accepted in your specific trade or profession and a “necessary” expense is one
that is helpful and appropriate. This is true whether you are a W-2 employee
working for someone else or are self-employed, either as a sole proprietor
reporting income and expenses on Schedule C of Form 1040, a partner in a
partnership which files Form 1065, or an employee of your own “one-man”
corporation filing either Form 1120 or Form 1120S.

An
employee would deduct such expenses as a “miscellaneous deduction” on Schedule
A, subject to the 2% of AGI exclusion. So the deduction is only available if
you itemize and could be limited. However if you have a one-man corporation and
pay yourself a salary the corporation can pay directly, or reimburse you under
an accountable plan, for such expenses and deduct them on the corporate return.

Conferences
Are Educational

One
“ordinary and necessary” business expense for which you can claim a tax
deduction is the cost of education that is (1) expressly required by an
employer, by law, or by government regulation, or (2) maintains or improves
skills required in your current trade or business. If a conference falls under
this category, then the associated registration and travel expenses are
deductible as well!

To
be deductible, you must show that your attendance benefits your trade or
business. Unfortunately, if the convention is for investment, political,
social, or other purposes unrelated to your trade or business, you cannot
deduct the expenses:

The
convention agenda or program generally shows the purpose of the convention. You
can show your attendance at the convention benefits your trade or business by
comparing the agenda with the official duties and responsibilities of your
position. The agenda does not have to deal specifically with your official
duties and responsibilities; it will be enough if the agenda is so related to
your position that it shows your attendance was for business purposes.

Example
Deductible Expenses

■The registration fee for the
conference or convention and any related books or materials.

■Round-trip airfare, trainfare, or
busfare at cost, or the Standard Mileage Allowance for business travel if you
drive (or, as an alternative, a percentage of the total actual costs of
operating your car) and related red cap tips.

■Taxi fares to and from the airport,
train or bus station, to and from your hotel, and to and from other business
locations while away.

■Hotel or motel lodging expenses,
including tips to bellman and maids and the cost of laundry services.

■All meals (although as with any
business meal only 50% is actually deductible).

After
I deduct all my travel expenses, I often save enough in taxes to cover the
registration fee and some of the travel expenses! I get a free quality
education, which benefits my practice, and I save on the actual cost of the
trip.

What
You Can’t Deduct

If
you are travelling with your family, only your expenses are deductible. However
airlines often offer discounts for accompanying family members, and a hotel
room is generally the same price whether regardless of the number of people in
the room. You can deduct what it would cost if you were travelling alone. There
are special rules if your spouse also works for your business.

You
cannot deduct auxiliary sightseeing expenses while at the conference or
convention, such as guided tours or travel to and from attractions, museums,
sporting events, theatres, etc (unless you were attending with a client or
colleague and the activity qualified as deductible business entertaining).

Record
Keeping Rules

As
with any other business expense you must keep detailed records and receipts.
Use a credit card for all meals, get receipts from taxi drivers, and keep a
copy of the detailed hotel bill in addition to the charge card receipt. And be
sure to save the conference or convention agenda/schedule to prove its
relevance to your trade, business or job.

Just
as with business use of your automobile and the Standard Mileage Allowance, the
IRS allows you to deduct either the actual out of pocket expenses for meals and
“incidental” expenses and lodging or claim a federal “per diem allowance” that
is determined by the location of the trip. There is a per diem rate for lodging
and a separate one for meals and “incidental” expenses. If you claim the per
diem allowance you do not have to save receipts for actual expenses, here are
the GSA per diem rates.

The
per diem rate for meals and incidental expenses includes tips given to porters,
baggage carriers, bellhops, hotel maids (the “incidental” expenses) – so the
actual out of pocket for these incidentals are not deductible if you claim the
per diem. On the first and last day of a business trip you claim 75% of the per
diem amount, unless you can show you leave before breakfast on the first day
and return after dinner on the last.

You
can decide whether to deduct the GSA meals and incidental per diem rate or
actual expenses on a trip by trip basis, but you must use the same method for
all days within any single business trip. You can use the actual expenses when
attending a conference in New York City in May and the per diem rate for an
August convention in Las Vegas.

Remember,
100% Business

Make
sure to schedule your trip so that it remains 100% business. Let’s look at this
year’s NATP National Conference (in Reno) as an example. Registration begins on
Sunday, with activities running Monday through Thursday. You would want to
arrive on Sunday and leave on Friday. This way you have no “personal days”.
However, all you need to do on Sunday is register, leaving the rest of the day
to do whatever you want.

FYI,
travel extended to get a reduced airfare (such as a Saturday or Sunday night
stay-over for domestic travel) is allowed, even though there is no business
activity on the extra day, if the extra cost of the stay-over is less than or
equal to your airfare savings (IRS Private Letter Ruling 9237014).

So
you have always wanted to visit San Francisco. Find a conference or convention
related to your business that is being held there and take a tax-deductible
vacation!

Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time and mine.